NEW YORK (Reuters) -- Standard & Poor's today cut certain debt ratings of General Motors and Chrysler LLC, citing lower likelihood of recovery by their debtors in the event either carmaker defaults on the loans or files for bankruptcy.

The rating downgrades put extra pressure on the two iconic U.S. carmakers, whose already declining fortunes have worsened during the ongoing global economic downturn.

GM, unlike Chrysler, likely would survive in the event of bankruptcy, Standard & Poor's recovery analyst Greg Maddock said in an interview.

"If Chrysler goes into bankruptcy, I would expect it to go into liquidation -- that its assets would be sold in whole or in part," Maddock said. "Instead of being reorganized, there would be no carmaker after bankruptcy."

Maddock cut S&P's rating on General Motors' $4.5 billion senior secured credit line deeper into junk, due to a shrinking pool of assets available to repay lenders and weak demand for its light vehicles.

"Basically GM is shrinking in terms of the assets they secure," Maddock said. "The debt stays the same."

GM and Chrysler are operating under emergency U.S. government loans. GM has been told by the Obama administration's task force overseeing its bailout that it must cut costs and reduce its debts in order to continue to receive aid.

Chrysler, which has been operating under $4 billion of loans from the task force, has been offered up to $6 billion more if it completes an alliance with Italy's Fiat SpA .

GM'S SLIPPING ASSETS, WEAK CAR SALES

S&P lowered the rating on GM's revolver to CCC-minus from CCC and revised its recovery rating to 2 from 1, reflecting S&P's view that lenders should expect less recovery in the event of a payment default.

Should GM default or file for Chapter 11 bankruptcy protection, holders of its senior secured revolver should expect a 70 percent to 90 percent recovery of what they are owed instead of the previous expectation of 90 percent to 100 percent, S&P said.

"The lowering of the rating on the revolving credit facility reflects our view of persistently weaker demand for light vehicles in North America, as well as declining pools of assets securing the revolving credit facility," Maddock said in a statement.

The federal task force has required GM, the biggest U.S. automaker, to reach agreements to slash some $28 billion of unsecured debt and restructure funding of a trust for union retirees by June 1. The alternative raised by the task force could be a bankruptcy filing.

News reports have said GM may only offer bondholders a small equity stake in the company, with no cash or new debt.

GM has declined to comment on the status of discussions with bondholders.

S&P kept GM's corporate credit rating at CC, reflecting its view of the likelihood that GM will default -- through either a bankruptcy or a distressed debt exchange.

CHRYSLER DEBT ALSO DEEMED RISKIER

S&P also offered a more wary view on Chrysler, cutting debt ratings on its loans due in 2013 and 2014 and citing a lower potential recovery by debtors in the event of payment defaults by the carmaker.

Maddock lowered by two notches S&P's issue-level ratings on Chrysler's senior secured loan due 2013 to CC from CCC. S&P said its downgrade indicates lenders can expect an average recovery of 30 percent to 50 percent in the event of a payment default.

The ratings agency said its corporate credit rating on Chrysler was left intact, at CC, reflecting no change in its view of the likelihood of default by Chrysler from either a bankruptcy or a distressed debt exchange.

S&P lowered its issue rating on the carmaker's senior secured second-lien term loan due 2014 by one notch to C from CC, suggesting lenders can expect a negligible to a 10 percent recovery if a default occurs.

"The lowering of our issue ratings reflects lower recovery estimates, given our current view that Chrysler would be unlikely to emerge from bankruptcy as one reorganized entity," Maddock said in his report.

PRESS RELEASE: General Motors Revolving Credit Facility Issue Rating Lowered To 'CCC-' On Revised Recovery Estimate

NEW YORK, April 10, 2009--Standard & Poor's Ratings Services today said it has lowered its issue-level rating on General Motors Corp.'s $4.5 billion senior secured revolving credit facility to 'CCC-' (one notch above the 'CC' corporate credit rating on the company) from 'CCC'. We revised the recovery rating on this facility to '2' from '1', indicating our view that lenders can expect substantial (70% to 90%) recovery in the event of a payment default. The corporate credit rating remains unchanged, at 'CC', reflecting our view of the likelihood that GM will default--through either a bankruptcy or a distressed debt exchange.

The issue rating on GM's $1.5 billion senior secured term loan was left unchanged, at 'CCC' (two notches above the corporate credit rating); the recovery rating on this debt remains at '1', indicating our view that lenders can expect very high (90% to 100%) recovery in the event of a payment default. In addition, the issue rating on GM's unsecured debt was left unchanged, at 'C' (below the corporate credit rating); the recovery rating on these tranches remains at '6', indicating our view that lenders can expect negligible (0-10%) recovery in the event of a payment default.

"The lowering of the rating on the revolving credit facility reflects our view of persistently weaker demand for light vehicles in North America, as well as declining pools of assets securing the revolving credit facility," said Standard & Poor's recovery analyst Greg Maddock. The facility is available to GM and General Motors of Canada Ltd. (For the complete recovery analysis, please see the recovery report on General Motors, to be published immediately following the release of this report on RatingsDirect.)

The corporate credit rating reflects our view of the prospects for a distressed debt exchange (which we would consider tantamount to a default under our criteria) or a bankruptcy filing. (For the corporate credit rating rationale, please see Standard & Poor's research report on GM, published Dec. 4, 2008, on RatingsDirect and our bulletin published March 30, 2009.)

Our recovery ratings do not reflect any debtor-in-possession (DIP) financing that could prime (supersede) the liens of existing secured lenders and result in a lower recovery value. We did not assume any further government funding in our analysis on either a pre- or post-petition basis and are rating based on a reorganization scenario. Additional pre-petition funding does not change the analysis because the senior lenders are secured by essentially all assets. We believe additional post-petition lending in the form of DIP financing would be more problematic for recoveries because GM has no available assets to secure a DIP facility. In our view, this suggests that the existing lenders (including the government) could be primed in a bankruptcy proceeding, which would result in lower recovery values, either in a reorganization or in the event of a possible liquidation as the estate is wound down. For example, we estimate recovery would be 70% to 90%, but a priming DIP could cause the recovery to be far lower (depending on the size of the DIP facility and the use of proceeds).

RATINGS LIST

General Motors Corp.

Corporate credit rating CC/Negative/--

Downgraded

To From

General Motors Corp.

Senior Secured CCC- CCC

Recovery Rating 2 1

General Motors of Canada Ltd.

Senior Secured CCC- CCC

Recovery Rating 2 1